Tech bellwether Oracle Corporation (NYSE:ORCL) crushed investors’ hope with lackluster third quarter of fiscal 2014 results. After posting better-than-expected results for the second quarter, it failed to show sustained turnaround in the reported quarter.
Oracle Earnings in Focus
Earnings per share came in at 65 cents, falling short of the Zacks Consensus Estimate by 2 cents. Earnings however increased a penny from the year-ago quarter. Revenues rose nearly 4% year over year to $9.31 billion but fell shy of our estimate of $9.36 billion.
The company is losing out to its rivals like Salesforce.com Inc. (CRM) and Amazon.com (AMZN) that offer remote or cloud services over the Internet at lower prices. This is because Oracle generally provides traditional services by licensing and servicing software installed locally on individual computers.
Owing to the weak results, ORCL shares tumbled more than 5% in after hour trading yesterday but slightly recovered at the close and were finally down 3.5%. This trend might continue in the short term given sluggish IT spending, tough competition and the company’s evolution.
The stock currently has a Zacks Rank #4 (Sell). Though things appear to be difficult for the company in the short term, long term prospects are bright.
Long Term Outlook
Recovering hardware operations and a growing cloud applications business are fueling the company’s growth. This is especially true as the acquisition of Sun Microsystem four years ago and cloud-based big data firm BlueKai at the tail end of its fiscal third quarter are expected to bear fruits in the coming years, ensuring long-term growth (read: Merger Arbitrage ETFs in Focus on Rising Deal Volume).
Further, the company’s low cost engineered systems (Oracle Virtual Compute Appliance), higher subscription revenues and improving sales force would further boost its long term growth prospects. Moreover, ORCL is likely to benefit from the ongoing transition to the new generation of cloud computing and Big Data.
With that being said, the world’s largest database software maker expects revenues to grow in the range of 3–7% (in U.S. dollar terms) for the fiscal fourth quarter buoyed by 0–10% growth in both new software license and cloud subscription revenue as well as hardware business. It also projects earnings per share in the range of 92–99 cents, which is above the Zacks Consensus Estimate of 91 cents.